Question

An income statement under absorption costing includes all of the following:

a) Variable manufacturing costs only
b) Both variable and fixed manufacturing costs
c) Only fixed manufacturing costs
d) Selling and administrative expenses only

Answer 1

An income statement under absorption costing includes both variable and fixed manufacturing costs.

Step-by-step explanation:

An income statement under absorption costing includes both variable and fixed manufacturing costs (Option b).

Under absorption costing, all manufacturing costs, both variable and fixed, are included in the calculation of the cost of each unit of product. This includes direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead.

Variable manufacturing costs vary with the level of production, while fixed manufacturing costs do not change regardless of the level of production. Including both variable and fixed manufacturing costs provides a more comprehensive view of the total costs incurred in the production process.